House Building Advance (HBA) is offered to employees of the Central Government with an aim to provide assistance in the construction or acquisition of houses/flats. The scheme was first launched in 1956 in the form of a welfare measure. The Ministry of Urban Development is the nodal Ministry for implementing the same. The Ministry also formulates the rules pertaining to House Building Advance.
HBA is provided to all permanent or temporary employees with service of 10 continuous years or more. The respective departments are given the power to sanction House Building Advance to employees based on the existing rules.
Interest rate on House Building Advance
HBA is associated with a simple interest from the date of payment of the advance amount. The interest amount is calculated based on the outstanding balance on the last day of the month. The interest rate on HBA is between 6% and 9.5%, and is based on the loan amount.
A higher interest rate is stipulated in the sanctions, at 2.5% above the prescribed rates. The employee will receive a rebate on the interest rates if he/she fulfills the following conditions:
- 2.5% rebate is applicable on HBA loan if the conditions related to the sanction of the advance and recovery of the entire amount are fulfilled completely.
- 0.5% interest rate is offered to an employee who undergoes voluntary sterilisation. The same rate is also offered to an employee if his/her spouse undergoes sterilisation.
- The details of the advance are as shown in the table below:
|Slab||Rate of interest per year|
|Advance up to Rs.50,000||6%|
|Advance up to Rs.1,50,000||7.5%|
|Advance up to Rs.5,00,000||9%|
|Advance up to Rs.7,50,000||9.5%|
House Building Advance maximum admissible amount
The cut-offs for the House Building Advance amount and cost of house/flat are as shown below:
|Maximum HBA||Conditions||Upper limit on cost of house/flat|
||Lowest among the following:
||134 times the pay in the Pay Band. A maximum limit of Rs.30 lakh is stipulated|
Rules for safe recovery of House Building Advance
- The recovery of the HBA will be made in less than 180 monthly installments. The interest will be recovered in less than 60 monthly installments as well. If the government employee is retiring before 20 years, the repayments will be done in installments convenient to him/her. The balance can also be paid from the Retirement Gratuity.
- It is mandated that the government employee insures the house as soon as the purchase/construction is completed with the Life Insurance Corporation of India or any of its associated units. The insurance can also be taken from any of the approved private insurance companies. It should be noted that the sum assured under the insurance should not be less than the amount of advance provided for fire damage, lightning, floods, etc. The insurance should also continue till the advance and interest are completely repaid by the employee.
- The house should be mortgaged in favour of the President of India within a specific duration, unless the Head of Department of the employee grants an extension in time. After the advance and interest amounts are paid back, the mortgage deed is re-conveyed.
House Building Allowance application form
- The land/house ownership should be transparent, and it should be in the name of the employee or his/her spouse.
- The applicant of his/her spouse should not have another land/house/flat while submitting the application for the HBA. In case they have a minor child, he/she should also not have a house/land/flat.
- The advance can be utilised to construct a living space or buy land on which the house will be built.
- Only permanent or temporary government employees with 10 years’ service can get the HBA.
- An application form that consists of 12 pages has to be filled up and submitted when applying for the HBA. This form is easily available online and offline.
7th Pay Commission recommendations – Hike in House Building Allowance
In November 2017, the government revised the House Building Allowance (HBA) rules for Central Government employees in an attempt to boost the housing sector in the country. The recommendations made by the 7th Pay Commission were accepted and implemented. With the new regulations in place, an employee of the Central Government can now take a loan of Rs.25 lakh for building a house. Earlier this amount was Rs.7.5 lakh.
Listed below are the new provisions:
- An employee of Central Government can borrow up to an amount equal to his/her basic pay for 34 months. This is subject to a maximum limit of Rs.25 lakh, the cost of the house, or an amount based on his/her repaying capacity. The lowest amount among these will be considered. This limit was initially stipulated as Rs.7.50 lakh.
- The amount provided for the expansion of a house under HBA has now been revised to a maximum of 34 months’ basic pay, Rs.10 lakh, actual cost of expansion of the house, or an amount that depends on the repaying capacity of the individual. The least amount among these is considered. Earlier this amount was stipulated to be Rs.1.80 lakh.
- The maximum limit pertaining to the cost of a house that an employee can construct/purchase is now Rs.1 crore, as opposed to the earlier limit of Rs.30 lakh. There is a provision to revise this amount upwards by 25% for deserving candidates.
- Initially, only one spouse was eligible to receive the HBA. Now this benefit has been extended to both spouses, provided they both are Central Government employees.
- Individuals can migrate from home loans to HBA, if required. These home loans should be availed from registered banks/financial institutions.
- The provision to take second charge mortgage on the house has also been simplified to a great extent.
- The interest rate on HBA will be 8.50% (simple interest), as opposed to the earlier four slabs ranging from 6% to 9.50%.
- This interest rate will be reviewed at an interval of 3 years. If there is a change in the interest rate, all subsequent installments of the loan will be based on the applicable interest rate for that year. Also, an employee can avail HBA only once in his/her lifetime.
- The provision to add a higher interest rate at 2.5% above the stipulated rate is now withdrawn.
- The recovery of the HBA will continue based on the existing guidelines, i.e., recovery of the principal in the first 15 years in 180 monthly installments and the interest in 60 monthly installments in the next 5 years.
- The house purchased/constructed with the HBA amount can be insured through private insurance companies approved by the Insurance Regulatory and Development Authority (IRDA).
- The attractive package offered as HBA is expected to incentivise government employees to purchase houses, hence boosting the housing sector in the country.